Risk and Capital Management in the Largest Brazilian Banks and the Strategic Component of the Provision for Credit Risk

Abstract: The present work seeks to analyze the structures and processes of risk and capital management, and the behavior of the main related indicators of the largest financial institutions in Brazil, aiming to evaluate the effectiveness of management and the resilience of such indicators in the face of adverse scenarios such as the of Covid-19. The methodology adopted was documentary research with standardized techniques for collecting data from public sources from 2015 to 2022. The main risks incurred were analyzed, directly related to banking activity, such as credit, market, and liquidity risk. and operational, in addition to assessing the macroeconomic scenario, internal and external, and the risk environment. Furthermore, and aiming to estimate the possible effects of the COVID-19 and post-Covid period on the capital composition of banks, a linear regression is estimated with quarterly frequency panel data covering the period from the first quarter of 2010 to the first quarter of 2023. The results indicate that the largest Brazilian banks are adequately prepared to withstand scenarios of greater adversity in managing their risks, with their indicators proving resilient even in a stressed scenario with greater volatility. The pandemic period did not have significant effects on banks’ capital indicators. These findings are useful for professionals in the banking market, risk managers, agents who work with financial market regulation, and the general population whose well-being depends on the economy’s stability.

Key words: banking risks, risk management, macroeconomic, economic stability, coronavirus pandemic

JEL codes: G21, G24, G28, G32